(Reuters) - Denmark will spend more than $1 billion to upgrade its tax inspection system, 10 years after it began sacking thousands of people who worked for the inspection office.

In the past three years alone, Denmark figures it has lost 12.3 billion Danish crowns ($1.87 billion) in tax fraud. Hence the decision announced on Friday to start hiring people instead of firing them.

"The Danish people's faith in the tax system is rapidly falling, which is a worrying symptom in a trust-based taxation system like the Danish one," Minister for Taxation Karsten Lauritzen told a news conference on Friday.

With a total tax burden amounting to 51 percent of gross domestic product, Danes carry the highest tax burden in the world, according to the Organisation for Economic Cooperation and Development.

In a bid to save money, the government cut 4,000 jobs in the tax inspectorate starting in 2006. Now it plans to add 2,000 people as part of the upgrade, which will cost 7 billion Danish crowns ($1.06 billion), the minister said.

In an effort to recoup money paid out in the form of fraudulent tax refunds to people outside the country, Danish authorities have carried out raids in Britain and elsewhere.

Evidence relating to at least 12 companies was seized and 2.1 billion crowns have been frozen in foreign bank accounts, tax authorities said on Wednesday.

"Today we are beginning to build up the tax authority from the bottom, and new energy is needed for that assignment," the minister said.

Executive director of Danish tax authority SKAT Jesper Ronnow Simonsen has been put on immediate leave, and current head of customer relations Merete Agergaard is constituted as new director.